Google Is Microsoft In Devices, But Watch The Cloud

Google's (NASDAQ:GOOG) strategy, to create a true "year of desktop Linux" with Android devices from a number of OEMs overwhelming Apple's (NASDAQ:AAPL) early lead in the space, is working.

That's why Microsoft's (NASDAQ:MSFT) big Windows 8 event was laughed at. It wasn't that the Windows 8 product was poor. It was that it was so late to the market as to be irrelevant.

We can argue about the impact of this on Google's bottom line. There is an argument to be made that it's minimal, because Google makes no money from sales of non-Motorola products (and it's actually losing money there). But the strategy itself has been effective. Android has about two-thirds of the mobile market in the U.S. and EU, it is on track to pass Microsoft globally, and it continues to gain on Apple in tablets.

What Google bears will ask endlessly is what this means to the bottom line. Microsoft got licensing fees from Windows. Google isn't even guaranteed to be the default search engine on Android. (Amazon made Bing the default on the new Kindle Fire.) Google's own device efforts seem to be failing, with Razr prices dropping like a stone and Google being forced to cancel its version of Apple's TV box just months after launching it.

Fair enough. But you can sync your Google life from any Android easily. It's fairly easy to "jailbreak" the default search engine. Google is becoming dominant in its areas of strength thanks to Android, so that when Microsoft tied Bing to its own new Windows gear the reaction here was laughter.

In any case, devices are not Google's "secret sauce." For Google, devices are a defense mechanism, a way to limit other makers' mischief. (See the iOS maps fiasco for an example of that.) The company's secret sauce remains its cloud, which is the cheapest way to do Internet stuff on the planet. What investors should be demanding are numbers on the Google Compute Engine, Google Play, and other efforts by Google to monetize that cloud. That's what Larry Page's team is focused on, and that's how investors should measure them. We know the Compute Cloud has a price-performance advantage, and we want to see that translated into growing market share to remain bullish on the company.

Devices are defense. The cloud is offense. Remember that as you analyze Google as an investment. I remain bullish.

Disclosure: I am long GOOG, AAPL, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.